With the first week of the new year witnessing heightened FII interest in government debt, British brokerage HSBC today said factors like relaxation in debt limits will result in more foreign inflows into the segment.
"Offshore appetite for government bonds is likely to stay strong with the gradual relaxation of the FII debt limits to be announced every quarter," it said in a note.
Attractive bond yields, lower inflation outlook and relatively resilient rupee amidst the ongoing emerging markets currency weakness are among the other factors which are a draw for the investors, it added.
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Besides this, strong foreign interest in the paper was evident at the government debt auction as non-investors bid for Rs 14,200 crore worth of government bonds in comparison to Rs 7,400 crore worth of bonds on offer, it said.
Last September, the Reserve Bank had hiked the limits for FII investment in G-secs to 5 per cent of the outstanding stock by March 2018, a move that will bring in an additional Rs 1.2 trillion into this highly sought-after market segment.
Announcing the hike, Governor Raghuram Rajan had said the limits for FII investments in debt securities would henceforth be announced/fixed in rupee terms.